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Homeland Insurance Co. of Delaware v. Devereux Foundation

United States District Court, E.D. Pennsylvania

August 7, 2019

HOMELAND INSURANCE COMPANY OF DELAWARE, Plaintiff,
v.
THE DEVEREUX FOUNDATION and ERIC JOHNSON, Defendants.

          MEMORANDUM OPINION

          LYNNE A. SITARSKI UNITED STATES MAGISTRATE JUDGE

          Pending before the Court is Plaintiff's Motion for Leave to Amend its Answers to Defendants' Counterclaims (ECF No. 73), Defendants' Response in Opposition thereto (ECF No. 79), and Plaintiff's Reply in Further Support (ECF No. 81).[1] For the following reasons, Plaintiff's Motion will be GRANTED.

         I. PROCEDURAL/FACTUAL BACKGROUND

         On May 26, 2017, Homeland Insurance Company of Delaware (“Plaintiff”) initiated the instant action against the Devereux Foundation (“Devereux”), seeking a declaratory judgment that it has no duty to indemnify Devereux under two separate insurance policies Devereux purchased from Plaintiff. (Compl. ¶ 1, 14, ECF No. 1). Specifically, Plaintiff sought a declaration that the policies did not provide coverage to Devereux for a loss Devereux sustained as the result of being found liable in a negligence suit.[2] (Id.).

         Relevant to the instant motion, on February 9, 2018, Devereux filed its Answer, and asserted the following counterclaims against Plaintiff: breach of contract, breach of the duty of good faith and fair dealing, and statutory bad faith under 42 Pa. C.S. § 8371. (See generally Answer 12-27, ECF No. 26). Devereux also sought a declaratory judgment that Plaintiff was obligated to provide indemnity coverage under the 2014-2016 Policy. On March 2, 2018, Plaintiff filed its initial Answer to Devereux's Counterclaims. (Initial Answer, ECF 27). Plaintiff raised fifteen affirmative defenses, including that Devereux's failure to comply with the terms and conditions of the policies barred coverage. (Id. at 13). Johnson was thereafter joined as Defendant and Counterclaim Plaintiff, pursuant to the terms of the settlement agreement reached in the underlying Johnson litigation.[3]

         On December 19, 2018, Plaintiff filed its Third Amended Complaint. (Pl.'s Third Am. Compl. ECF No. 49). Defendants answered the Third Amended Complaint in January of 2019, raising the same Counterclaims. (Johnson's Answer, ECF No. 59; Devereux's Answer, ECF No. 63). On February 15, 2019, Plaintiff filed its Answer to Defendants' Counterclaims, asserting sixteen affirmative defenses. (Answers, ECF Nos. 68 and 69). Plaintiff maintained, inter alia, that Devereux failed to comply with the terms and conditions of the policies and was therefore not covered by them. (Id. at 13).

         Meanwhile, Plaintiff's counsel discovered the facts precipitating this Motion to Amend its February 15, 2019 Answers when reviewing the files of Devereux's defense counsel in the underlying Johnson litigation. (Br. in Resp. Ex. A at ¶4, ECF No. 79). On December 14, 2018, Plaintiff's counsel examined emails sent from Devereux's former counsel, Yost & Tretta, to Johnson's counsel regarding the negligence suit. (Id. at ¶3-5). These emails showed that, during the summer of 2015, Devereux and Johnson engaged in preliminary settlement discussions.[4]Plaintiff seeks to amend its Answers based on these emails. Specifically, Plaintiff contends that under the policies, Devereux was required to report settlement discussions to Plaintiff; thus, Devereux breached these contracts by failing to disclose the settlement discussions. (Pl.'s Mem. Law, ECF No. 73-1, at 10). Accordingly, Plaintiff seeks to amend its Answers to assert this defense that Devereux's recovery on any alleged counterclaims should be barred, or reduced, based on Devereux's breach of the insurance contract. (Id.).

         On the day Plaintiff discovered the emails, December 14, 2018, it first raised with Devereux's counsel the issue of Devereux's failure to disclose the 2015 settlement discussions. Pl.'s Reply, ECF No. 81, at 6). On January 24, 2019, Plaintiff told Johnson that Plaintiff's exclusion from the 2015 settlement negotiations was “problematic.” (Id.; see also Reply, ECF No. 81-9, Ex. I at ¶ 13-15). In late March 2019, Plaintiff informed Defendants that Plaintiff wanted to amend its February 2019 Answers; Plaintiff again did so in an April 3, 2019 email, and once again in person on April 23. (Br. in Resp. 6, Reply, at 5 n.6). On April 30, Plaintiff's counsel emailed Defendants' counsel “[f]ollowing up on our conversation at the end of Rick Yost's deposition” and requested Defendants stipulate to Plaintiff adding the following defense to its Answers:

Devereux's right to recover damages (and Johnson's right to recover damages, as Devereux's assignee) is barred or limited by Devereux's own material breach of contract.

(Id.). Defendants did not reply, and two days later, on May 2, 2019, Plaintiff filed its Motion seeking leave to amend. (Motion, ECF 73). Fact discovery closed the following day, on May 3, 2019. (See Order, ECF No. 71). On May 14, 2019, Defendants filed their Response in Opposition. (Br. in Resp., ECF No. 79).[5] Plaintiff filed its Reply in Further Support on May 21, 2019. (Pl.'s Reply, ECF No. 81).

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 15(a)(2) sets out the standard for granting leave to amend an answer when, as is the case here, a responsive pleading had been served; “a party may amend its pleading only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a). “The court should freely give leave when justice so requires, ” and the Third Circuit has held that “motions to amend pleadings should be liberally granted.” Fed.R.Civ.P. 15(a)(2); Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004). The fundamental purpose of Rule 15 is to give a party the opportunity to test its claim on the merits. United States ex rel Customs Fraud Investigations, LLC v. Victaulic Co., 839 F.3d 242, 249 (3d Cir. 2016).

         “Leave to amend must generally be granted unless equitable considerations render it otherwise unjust.” Arthur v. Maerski, Inc., 434 F.3d 196, 204 (3d Cir. 2006) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). “Among the factors that may justify denial of leave to amend are undue delay, bad faith, and futility.” Arthur, 434 F.3d at 204; see also Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001). Given the liberal standard of Rule 15(a), the party opposing amendment bears the burden of showing undue delay, bad faith, prejudice, or futility. Cureton, 252 F.3d at 273. The decision to grant or deny a motion for leave to amend is within the sound discretion of the district court. Id. at 272.

         III. ...


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